How much will you need to save by the time you retire in order to spend those years in comfort?

It’s a simple question with a not-so-simple answer. However, regardless of whether retirement is just around the corner, or you still have a few decades to prepare, it’s one of the most important questions to be asking yourself. If you don’t know how much you need to save to live comfortably, it’s tough to know whether you’re actually ready to retire.

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The truth, though, is that too many workers don’t even have this question on their radar. In fact, nearly half (41%) of American workers said they have not thought about how much income they’ll need each year during retirement, according to a 2018 Gallup poll, and 32% of respondents said they had estimated a number. Only 20% had actually done calculations to come up with a realistic retirement number.

The question, then, is why so many workers are putting their retirement at risk by not calculating their retirement number and creating a savings plan around it. There are a few possible answers, such as the fact that these calculations can be daunting — especially when you consider the idea that you might need upward of $1 million to make it through retirement.

Also, because so many people are behind on their savings, it might be comforting to stick your head in the sand and avoid thinking about lofty retirement goals you might not be able to reach. Finally, some people simply may not know where to start, so it’s easier to put off saving until you have more time to figure it out (which, of course, might never happen).

But it’s easier than you might think to figure out how much you need to save for retirement and how much you can safely withdraw each year, and then start saving to reach those goals. Even if you’re falling behind on saving, it’s never too late to get started with a few simple steps.

Step 1: Calculate your retirement number

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The first step to creating a retirement plan is figuring out how much you need to save by the time you retire.

The simplest way to get a ballpark estimate is with a retirement calculator. Most of these calculators will let you plug in numbers like your current salary, how much you have in savings, your age, and the age at which you want to retire, and it will spit out a goal you should aim for. While this is a great starting point, it’s still just an estimate. Different calculators use different formulas, so your retirement number could vary based on which one you use.

For instance, when I use my own information in three different calculators, I get three different results. According to one calculator, I’ll need around $2.6 million saved by the time I retire. A second calculator estimates I’ll need just $2.07 million, while a third gives me an estimate in the middle — around $2.2 million. The reason for these varying results is that each calculator uses slightly different inputs. For instance, one calculator can include a spouse’s annual income and Social Security benefits, while the other two can’t. Similarly, some calculators let you include annual salary increases between now and when you retire, which can affect how much you’re able to save.

So while it’s a good idea to use a retirement calculator to get an estimate of how much you’ll need and whether you’re on track, keep in mind that the number you get from it won’t be 100% accurate. Use a few different calculators to get a range of estimates, and be as accurate as possible when inputting your numbers.

Step 2: Determine how much you can withdraw each year

Calculating your retirement number will give you a rough estimate of how much you’ll need to have saved when you retire, so the next step is figuring out how much of that nest egg you can withdraw each year to last you through retirement.

The 4% rule is a common guideline when determining how long your retirement savings will last. It states, in a nutshell, that you can withdraw 4% of your total savings during the first year of retirement. Then for each subsequent year, you can withdraw that amount adjusted for inflation. That rule has worked well in the past to ensure that a portfolio can last 30 years or longer without running out of money.

For example, say you’ve figured out that you’ll need to have around $1 million saved by the time you retire. Using the 4% rule, that means you can withdraw $40,000 the first year. Assuming an annual inflation rate of 3%, you’ll be able to withdraw around $41,200 the second year of retirement, $42,436 the third year, and so on.

This is also a good time to factor in Social Security benefits, a pension, and any other income you’re expecting during retirement. While calculating exactly how much you’ll receive in Social Security benefits can be complicated, the Social Security Administration provides resources to estimate your benefit amount. Similarly, if you are entitled to a pension plan, you can usually visit the plan’s website to see roughly how much you’ll be receiving each year.

If your numbers are a little low, you might need to go back to step one and adjust your retirement number. If you thought, for example, that you would be able to live on 70% of your pre-retirement income, you might need to shift that to 80% or more if you find that the amount you can safely withdraw each year isn’t going to be enough to meet your needs.

Step 3: Start saving as early and often as possible

Once you have a goal in mind, it’s time to start taking steps to reach it. While the thought of having to save hundreds of thousands of dollars (or more than $1 million) can be intimidating, it’s not as scary if you start small and take baby steps.

First, make the most of the resources you have. If your employer offers matching 401(k) contributions, for instance, be sure to contribute enough to earn the full match. Also, try to contribute any bonuses, tax refunds, or raises you get to your retirement fund whenever you can. Even if these are relatively small contributions, they can add up over time.

For example, say you’re 40, with $20,000 saved for retirement. You’re earning $60,000 per year, and your employer will match 100% of your 401(k) contributions up to 3% of your salary, or $1,800 per year. If you also save $1,800 per year (or just $150 per month), that brings your total annual contributions to $3,600. If you earn a 7% annual rate of return on your investments, you’ll have more than $352,000 saved after 25 years.

Also, small increases in savings can amount to significant gains over time. In this example, you increase your savings rate by 2% of your wages every five years. So if you’re saving $1,800 per year now at age 40, that’s 3% of your $60,000 salary. By age 45, you’ll be saving 5% of your salary, or $3,000 per year, and so on. Assuming you’re still earning a 7% annual return and you’re also still receiving $1,800 per year from your employer, here’s what your savings would look like over time:

Age

Annual contributions (excluding employer match)

Annual contributions (including $1,800 employer match)

Total savings including match

40

$1,800 (3% of salary)

$3,600

$20,000

45

$3,000 (5% of salary)

$4,800

$50,203

50

$4,200 (7% of salary)

$6,000

$99,948

55

$5,400 (9% of salary)

$7,200

$177,102

60

$6,600 (11% of salary)

$8,400

$292,698

65

$7,800 (13% of salary)

$9,600

$462,212

It’s never too early to start saving, and it’s also never too early to come up with a retirement plan. It might seem overwhelming at first, but if you take it one step at a time, it’s much simpler than it looks — and you’ll be well on your way to a stress-free retirement.

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